Saturday, January 31, 2009

Returns -- January 2009

Unfortunately, January 2009 in many ways seemed just like a continuation of the lousy stock market of 2008. In fact, January 2009's overall stock market result was the single worst January performance ever. Yes, EVER!

Fortunately, the Covered Calls Advisor Portfolio (CCAP) performed substantially better than the Russell 3000 benchmark in January 2009. Selling call options against our stock holdings provides us covered calls investors with a clear relative advantage over the typical buy-and-hold investor; this is especially true during bearish markets (such as we are currently experiencing) as well as for range-bound markets.

Below is the Covered Calls Advisor Portfolio results for January 2009. First, a single performance measure is used to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. A simple example demonstrates how it is calculated:
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100.

1. January 2009 Results:

CCAP Absolute Return (Jan 1st through Jan 31st, 2009)
= -2.41%

Benchmark Russell 3000(IWV) January 2009 Absolute Return = -8.37%

Although negative, the CCAP performed substantially better than the Russell 3000 benchmark in Jan09.

2. Prior Years Results:

The Covered Calls Advisor Portfolio (CCAP) was begun in September, 2007. The annualized returns achieved for 2007 and 2008 compared with the Russell 3000 benchmark results were as follows:

For establishing new covered calls positions at this time, the Covered Calls Advisor's Overall Market Meter (shown in the right sidebar near the top of this page) shows that a SLIGHTLY BULLISH investment posture is recommended.
The corresponding covered calls investing approach is to write near-month primarily slightly out-of-the-money covered calls. By 'slightly out-of-the-money', this advisor means that for a covered calls portfolio, on average covered calls positions should be established somewhere between 1.0% and 2.5% below the strike price.